Starbucks: A Crack in the Mug

Kurt Blickenstaff - Eileen McIneryChristopher Serio - D'Arcy Villere

Suzanne Yonkers

Overview

• Company Background: Chris

• Competition: Kurt

• Macro Economic Forces: Suzanne

• Loss of Fidelity: Darcy

• Corporate Social Responsibility: Eileen

• Conclusion and Questions

Background• Founded 1971, Pikes Place Market, Seattle• Brand image: loyal customer base and ethical

corporate philosophy• Diverse portfolio• Global partnerships and alliances• Howard Schultz and company growth• Changes in 2007

Howard Schultz, CEOFirst Starbucks, Seattle, WA

Revenue Model

• Revenue model during expansionoMulti-componento Branding

• Redesigning the revenue modeloCustomer developmento Pyramid

Competitors Skate to Where the Money Is

• Dunkin Donutso Won the taste test over Starbucks o Opening up locations where Starbucks exists or

was looking to build (Midwest)

• McDonaldso Customers bringing Starbucks into McDonalds o Introducing premium coffee at 11,000 locationso Test market results

Image conflicts Quality is more important than price for

specialty drinks  

“I Know Kung Fu”• McDonalds

o Sumo Strategy or direct attack against Starbucks o Lower price (McCafe)o $100 million ad campaign

• Starbucks Judo Retaliationo Avoided a price war in their own key market o Differentiated on what makes Starbucks unique

o Quality -"It's Not Just Coffee, It's Starbucks”o End to end product o Offered value breakfast pairs

• Starbucks profit fell 77% in Q2 2009

Starbucks v. McDonalds

Macro Economic Forces

• Dependence on the financial performance of its U.S. segment

• Dependence on the success of its international segment to achieve its growth targets

• Failure to generate sufficient future cash flows and secure adequate external financing

• Less discretionary spending by customers

Recovery Method: Strategic Principles

• Differentiationo Deliver the finest quality of coffeeo Deliver a customer experience

• Superior Customer Valueo Customer intimacy with the existing customero Operational excellence through an “efficiency quest”

• Sustainabilityo Utilizing dynamic methodso Cost cutting measures

Loss of Fidelity

• Fidelity: total experience of somethingo Movie Theater vs. DVD vs. TV Movieo MP3 vs. DVD of concert vs. Live Concert

• Rapid Expansiono 1998: 1,886 stores                                                  1,886 o 2008: 16,226 storeso Opened 200 to 400/yro 1999 & 2000 opened

1,386 in one year

The Commoditization of the Starbucks Experience

Loss of Fidelity: Decision Matrix

Problem Decision Outcome

Speed of service and efficiency

Switch to automatic expresso machine

Romance removed

Need for fresh roasted coffee in every American city

Flavor locked packaging

Loss of aroma

Streamline store design

Standardized store layout

Loss of neighborhood feel

Not All Strategies Failed…

Triple Bottom Line = People, Profit, Planet

CSR Strategy

• 2000 agreement with TransFair USA

• CSR report published annually since 2001

• Areas of Focus

• Ethical bean sourcing

• Environment

• Community

• Workplace

• Annual and long-term goals for increased “responsibility”

Strategic Principles Guide CSR

• Positioning company as industry and corporate CSR leader

• Differentiation of commitments creates shareholder value

• Trade-off for “unwanted” aggressive growth

• Trade-off for brand image perceived by customers

• Trade-off for anti-Starbucks activists

• Leadership ingrains CSR in all levels of company

• Leadership communicates that CSR is competitive advantage

• Sustainability of CSR strategy throughout economic downturn

Can The Mug Be Fixed?

• Aggressive growth caused Starbucks to lose sight of its core competencies

• Led to a disjointed brand image• External and internal factors led to market share

decline and profit loss• Past strategies are being reevaluated• Trying to return to the basics• Currently still in a strategic transition mode

Questions?